U of I asks state legislators to prevent retirement rush; could affect 200 at UIS

By Dan PetrellaStaff Writer

Friday

Apr 18, 2014 at 5:59 PMApr 18, 2014 at 11:50 PM

The University of Illinois board of trustees held a special meeting by video conference Friday afternoon to discuss a quirk in the state’s pension reform law that officials are worried could trigger major brain drain across the system’s three campuses this summer.

Because of an “unintended drafting error,” thousands of university employees hired before 2005 stand to lose a significant portion of their lifetime retirement income if they don’t retire before July 1, Avijit Ghosh, senior adviser to university president Robert Easter, told the board.

The problem involves a provision of the pension system called the “money purchase option,” which is available to university employees hired before July 1, 2005. Retirees who use this option receive a monthly annuity based on their age at retirement, the amount of money they contributed, the state’s contribution and a guaranteed interest rate.

Before the legislature passed the pension reform bill late last year, that interest rate, based on the State Universities Retirement System’s historic returns, was 7.75 percent. The pension law changed the annual interest rate to the 30-year U.S. Treasury bond rate on July 1 of each year plus 0.75 percent, which for this year is expected to be about 4.25 percent.

However, to prevent professors and other university employees from rushing to retire, language was included in the bill that was intended to guarantee future retirees wouldn’t receive less than they would have if they retired before July 1 of this year.

But the actual language in the law set the cut-off date in 2013, which would result in a significant decrease in monthly income for employees who stay on past June 30. Ghosh cited an example of one employee who would see his or her monthly pension payment drop from $2,540 to $1,810, a decline of nearly 30 percent.

He said there are more than 5,000 employees eligible to retire, and the majority of them are affected by the change to the money purchase option.

University officials are now asking the legislature to pass a bill this spring to fix the problem.

Easter said the university has already been in contact with legislative leaders to call their attention to the problem.

“I’m optimistic that something will get done, but it needs to get done sooner rather than later,” he said.

Christopher Kennedy, the board’s chairman, urged a “full-court press” on the issue, calling on the university’s foundation, alumni association and faculty senates to reach out to lawmakers.

“We meet again May 14 in Springfield, and I would hope that we have some concrete progress by then,” Kennedy said.

A major problem facing the Urbana-Champaign, Chicago and Springfield campuses is that some experienced faculty must decide whether to retire, perhaps earlier than they want to, or risk losing income when they do retire.

A mass exodus of faculty could leave the campuses scrambling to make sure fall courses are covered, officials said.

The decrease in benefits also could lead younger faculty to look for jobs elsewhere, potentially taking millions in grant funding with them.

Chancellor Susan Koch said UIS has about 200 employees eligible to retire. Among those opting to do so, even though they’d prefer not to, are the math department head, the chief financial officer and the campus horticulturist, she said.

“Although, of course, the scale at the Springfield campus is different, the problem is the same,” Koch said.

One professor weighing his options is Steven Tozer, director of the Center for Urban Education Leadership at the Chicago campus.

Tozer told trustees he understood that pension reform would mean his retirement income wouldn’t grow at the same rate it would have previously, but he only recently learned he’ll “take a significant penalty” if he doesn’t retire this spring.

“I’m making more money now than I ever expected to make in the field of education, so I’m not hurting,” he said. “It’s a question of what’s prudent about the rest of my life. … The prudent decision is to retire and not take a significant hit.”

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